The Financial Planning Process: 5 Essential Steps

Financial Planning Process

The financial planning process involves five basic steps.  After the initial meeting with your financial planner, the five steps to the financial planning process include: data gathering, plan preparation, plan presentation, plan implementation, and on-going monitoring.

Financial Planning Process: Data gathering.

Data gathering is a marathon. It usually takes place at your home. It may take two hours or all day. Your planner will need to examine all your documents: Tax returns. Balance sheets. Income statements. Employee benefit plan booklets. Retirement plan documents. Wills. Trusts. Insurance policies. Investment statements. Brokerage house statements. Bank statements. These are the tangible bits of information.

But there's also subjective information, such as: What are your lifestyle goals? How do you want to distribute your estate? At what age do you want to retire? How much income do you want during retirement? Then there are the assumptions that need to be figured into the whole process. What's going to happen to interest rates? Where is the economy headed? How much inflation will occur? Your planner will want your feelings on these things to see if expectations are realistic.

Finally, your planner will consider your personal attitudes -- toward risk tolerance, toward tax aggressiveness, toward simplicity in your financial affairs. By the time all the data is gathered, your planner has a very good idea of where you are now and where you want to be. 

The next step in the financial planning process is plan preparation.

Financial Planning Process: Plan preparation.

Preparing your plan typically takes three to four weeks, as the planner does an analysis -- the diagnostic work. The planner knows where you are, and where you want to be. Now he needs to figure out the most efficient way to get you there.

For example, maybe it's a family partnership. Or a family corporation. Or a family trust. He'll look at all the pros and cons -- then prepare written recommendations. Some will be major strategic recommendations. Others will be minor tactical recommendations. They will all fit together. 

The next step in the financial planning process is plan presentation.

Financial Planning Process: Plan presentation.

After all the recommendations are in writing, your planner will present them to you. During the first interview, he'll present the plan to you and review the major areas. Then you'll take the plan home. Read it. Study it. Go over it with your spouse. Jot down any questions you may have about it.

When you get back together with your planner, you'll go over the plan in detail. He'll answer your questions. Clarify details. As you agree on each recommendation, your planner will prioritize them into an "Implementation Check List." It's simply a "To Do" list for you and your planner.

The next step in the financial planning process is plan implementation.

Financial Planning Process: Plan implementation.

The first three steps move quite quickly. In fact, you will probably get through them in about a month.

Step four, implementing the plan, takes a lot longer-usually about five or six months. During that time, you'll meet with your planner to go over tax planning, retirement planning, estate planning, and insurance issues. Your planner may bring in other experts -- such as attorneys to help resolve certain issues.

In the end, your plan might have as many as 25 recommendations. A few recommendations will be major, broad, strategic recommendations, each worth thousands of dollars to you. The remainder will be fine-tuning recommendations -- crossing the T's, dotting the I's, and making sure your financial affairs are really in order.

The last step in the financial planning process is on-going monitoring and maintenance.

Financial Planning Process: On-going monitoring and maintenance.

Here the planner should be retained to provide periodic updates and on-going advice. Perhaps there are a couple of tax-planning sessions each year, portfolio reviews, insurance updates, etc. Perhaps you need some questions answered about whether you should refinance your mortgage, lease or buy a car, etc.  Your planner should alert you to changes in conditions that directly affect your plan.

Hank Brock is president of Brock and Associates, LLC.  He has helped thousands of clients meet their goals through the financial planning process.